Environmental innovation across SMEs in Europe

This paper focuses on the relation between business innovation modes and environmental innovation. Over time firms have recognized the importance of prioritizing innovation to gain competitive advantages in open markets. Yet, in more recent times with the more recent international agreements on environmental sustainability (rounds in Doha in 2004; Copenhagen in 2009; Paris in 2016; and Glasgow in 2021), innovation needs to be guided through new boundaries and requirements that individual businesses and the business system as a whole face. One of these boundaries is nature and its resources which require significant protection as part of the international priority agenda on climate change agreed by most countries with the 2016 Paris Agreement on the Environment and recently confirmed with COP26. As firms are found to adopt alternative archetypical strategies of innovation, some science-driven (STI innovation mode) and others practice-driven (DUI innovation mode), we investigate whether any of these strategic modes is beneficial in relation to the capacity of the firms to produce eco-innovations, and which one is more beneficial in relation to which type of eco-innovation (e.g. technological and non-technological innovation). This analysis is seen in relation to the size of the firms as SMEs typically rely on practice and interactive-based innovation activities (DUI mode). This may help design environment protection-orientated policies that focus on specific drivers, thus making policy action efficient and effective. The analysis is based on the Community Innovation Survey (CIS) database for European countries. Our findings support the view that both STI and DUI drivers support eco-innovation through technological nuances that work also in the specific case of SME environmental innovation.